Julian Simon Was Right: A Half-Century of Population Growth, Increasing Prosperity, and Falling Commodity Prices

Many people believe that global population growth leads to
greater poverty and more famines, but evidence suggests otherwise.
Between 1960 and 2016, the world’s population increased by 145
percent. 1 Over the same
time period, real average annual per capita income in the world
rose by 183 percent. 2

Instead of a rise in poverty rates, the world saw the greatest
poverty reduction in human history. In 1981, the World Bank
estimated, 42.2 percent of humanity lived on less than $1.90 per
person per day (adjusted for purchasing power). In 2013, that
figure stood at 10.7 percent .3 That’s a reduction of 75
percent. According to the Bank’s more recent estimates, absolute
poverty fell to less than 10 percent in 2015. 4

Rising incomes helped lower the infant mortality rate from 64.8
per 1,000 live births in 1990 to 30.5 in 2016. That’s a 53 percent
reduction. 5 Over the
same time period, the mortality rate for children under five years
of age declined from 93.4 per 1,000 to 40.8. That’s a reduction of
56 percent. 6 The number
of maternal deaths declined from 532,000 in 1990 to 303,000 in 2015
— a 43 percent decrease. 7

Famine has all but disappeared outside of war zones. In 1961,
food supply in 54 out of 183 countries was less than 2,000 calories
per person per day. 8
That was true of only two countries in 2013. 9 In 1960, average life
expectancy in the world was 52.6 years. In 2015, it was 71.9 years
— a 37 percent increase. 10

In 1960, American workers worked, on average, 1,930 hours per
year. In 2017, they worked 1,758 hours per year — a reduction
of 9 percent. 11The data
for the world are patchy. That said, a personal calculation based
on the available data for 31 rich and middle-income countries
suggests a 14 percent decline in hours worked per worker per year.
12

Enrollment at all education levels is up. For example, the
primary school completion rate rose from 74 percent in 1970 to 90
percent in 2015 — a 20 percent increase. 13 The lower secondary school
completion rate rose from 53 percent in 1986 to 77 percent in 2015
— a 45 percent increase. 14 Tertiary school enrollment
rose from 10 percent in 1970 to 36 percent in 2015 — a 260
percent increase. 15

Even our air is getting cleaner. In the United States, for
example, aggregate emissions of six common pollutants (i.e., carbon
monoxide, lead, nitrogen dioxide, ozone, fine and coarse
particulate matter, and sulfur dioxide) fell by 67 percent between
1980 and 2016. 16

And, in spite of a recent increase in terrorist killings and the
number of civil wars, the world is still much safer than it was at
the height of the Cold War. 17 Last but not least, an
ordinary person has greater access to information than ever before.
All in all, we live on a safer, cleaner, and more prosperous planet
than was the case in 1960.

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How can one explain this unprecedented improvement in global
well-being? Some of it must be attributed to technological and
scientific progress. Also, specialization and trade played a vital
role in improving the state of the world. Globalization ensured
that an increase in the world’s population translated to an
increase in the world’s productivity.

Of course, growth required the use of massive amounts of natural
resources. How much of our natural wealth remains? Although we do
not know the size of most reserves of natural resources, we can
ascertain their scarcity or abundance by looking at prices. As this
paper shows, after 56 years of human use and exploration, the vast
majority of the commodities tracked by the World Bank are cheaper
than they used to be — either absolutely or relative to
income.

These findings would come as no surprise to the late Julian
Simon (1932-1998), who years ago explained and predicted the happy
confluence of growing population, increasing wealth, and falling
commodity prices. In his 1981 book The Ultimate Resource,
Simon noted that humans are intelligent animals who
innovate their way out of scarcity through greater efficiency,
increased supply, or development of substitutes. Human ingenuity,
in other words, is “the ultimate resource” that makes other
resources more plentiful. 18

An aluminum can, for example, weighed about 3 ounces in 1959.
Today, it weighs less than half an ounce. 19 In other cases, we have
replaced scarce resources with those that are more plentiful.
Instead of killing whales for lamp oil, for instance, we burn coal,
oil, and gas. In fact, humanity is yet to run out of a single
nonrenewable resource.

Although past performance does not guarantee future results,
constant predictions of doom and gloom should be put in
perspective. Humanity has solved many challenges in the past, and
there is no reason to believe that we will not be able to solve
problems in the future. Put differently, there is no compelling
evidence to support calls for mandatory curbs on human reproduction
and consumption.

Methodology

To see what has been happening to world commodity prices, I
looked at the World Bank’s Commodity Price Data, which include
prices for 72 commodities (see Appendix). The data set needed some
consolidation because some data sets started very late (e.g., 1996)
or were repetitive (e.g., there were four different tea price data
sets). As a consequence, I was left with 42 distinct data sets.

More specifically, I eliminated three crude oil data sets
(Brent, Dubai, and WTI) because the data contained therein were
already reflected in “Crude oil, average.” Because no measure of
the price of coal goes back to 1960, I kept “Coal, Australian,”
which goes back to 1970 and contains the most data. (Incidentally,
“Crude oil, average” and “Coal, Australian,” have both appreciated
more than was the case with prices in the eliminated data
sets.)

In the case of natural gas, prices in the United States and
Europe diverged significantly. 20 However, since I am trying to
compare global prices and global income, I created an average price
of natural gas consisting of both the American and European prices.
To simplify matters further, I created a single average for the
prices of coffee (combining Arabica and Robusta) and retained just
one measure of the price of tea, which is, in any case, the average
of the prices in Colombo, Kolkata, and Mombasa.

I also combined coconut oil and copra (from which coconut oil is
derived). I eliminated groundnuts, for which price tracking did not
start until 1980, with groundnut oil serving as a proximate measure
of the price of groundnuts. I eliminated palm kernel oil because
its price tracking doesn’t start until 1996, and I combined all
soybean price measures into one. I eliminated all prices for rice
except for the one measure that actually starts in 1960, “Rice,
Thai 5 percent.”

Similarly, I retained the only measure of wheat (Wheat, U.S.
HRW) that goes back to 1960. I eliminated “Banana, Europe” because
it didn’t start until 1997. I eliminated sugar prices in the United
States and Europe, retaining “Sugar, world” instead. I eliminated
“Logs” and “Sawn wood” from Cameroon because both data sets start
in 1970. “Rubber, TSR20” was eliminated because of its start in
1999. I also eliminated “DAP” (i.e., diammonium phosphate) because
it started in 1967, and I combined the other four fertilizers
(phosphate rock, triple superphosphate, urea, and potassium
chloride) into one price measure called “Fertilizer.”

Findings

Between 1960 and 2016, world population increased by 145 percent
and average income per capita adjusted for inflation increased by
183 percent. Out of the 42 distinct commodity prices measured by
the World Bank, 19 have declined in absolute terms. In other words,
adjusted for inflation, those commodities were cheaper in 2016 than
in 1960. Twenty-three commodities have increased in price over the
past 56 years. However, of those 23 commodities, only 3 (crude oil,
gold, and silver) appreciated more than income. In a vast majority
of cases, therefore, commodities became cheaper either absolutely
or relatively (see Table 1 and Figure 1).

Simon’s Wisdom in Historical Perspective

It is often posited that population growth must inevitably
result in the exhaustion of natural resources, environmental
destruction, and even mass starvation. Take, for example, the
report The Limits to Growth, which was published by the
Club of Rome in 1972. 21
The report, which was based on Massachusetts Institute of
Technology computer projections, looked at the interplay between
industrial development, population growth, malnutrition, the
availability of nonrenewable resources, and the quality of the
environment. It concluded that “If present growth trends in world
population, industrialization, pollution, food production, and
resource depletion continue unchanged, the limits to growth on this
planet will be reached sometime within the next one hundred years.
… The most probable result will be a rather sudden and
uncontrollable decline in both population and industrial capacity.
… Given present resource consumption rates and the projected
increase in these rates, the great majority of currently
nonrenewable resources will be extremely expensive 100 years from
now.” 22

That kind of alarmism is not ancient history. A recent article
in the journal Nature Sustainability argued that

Humanity faces the challenge of how to achieve a high
quality of life for over 7 billion people without destabilizing
critical planetary processes. Using indicators designed to measure
a “safe and just” development space, we quantify the resource use
associated with meeting basic human needs, and compare this to
downscaled planetary boundaries for over 150 nations. We find that
no country meets basic needs for its citizens at a globally
sustainable level of resource use. Physical needs such as
nutrition, sanitation, access to electricity and the elimination of
extreme poverty could likely be met for all people without
transgressing planetary boundaries. However, the universal
achievement of more qualitative goals (for example, high life
satisfaction) would require a level of resource use that is 2-6
times the sustainable level, based on current relationships… .
[O]ur findings suggest that the pursuit of universal human
development … has the potential to undermine the Earth-system
processes upon which development ultimately depends… . [I]f all
people are to lead a good life within planetary boundaries, then
the level of resource use associated with meeting basic needs must
be dramatically reduced.23

The above arguments are strikingly similar to those made in
The Limits to Growth report 46 years ago. Yet none of the
dire predictions made by the authors of the latter publication have
come to pass. On the contrary, we have seen an overall decline of
commodity prices relative to income — in spite of a growing
global population. Can this happy trend continue? To get a glimpse
of the future, we must first understand the concept of
scarcity.

Scarcity, or “the gap between limited — that is, scarce
— resources and theoretically limitless wants,” is best
ascertained by looking at prices. 24A scarce commodity goes up in
price, whereas a plentiful commodity becomes cheaper. That was the
premise of a famous bet between Stanford University professor Paul
Ehrlich and University of Maryland professor Julian Simon. Ehrlich
shared the gloomy predictions of the Club of Rome. In his
best-selling 1968 book, ThePopulationBomb, Ehrlich reasoned that overpopulation would lead to
exhaustion of natural resources and mega-famines. “The battle to
feed all of humanity is over. In the 1970s hundreds of millions of
people will starve to death in spite of any crash programs embarked
upon now. At this late date nothing can prevent a substantial
increase in the world death rate,” he wrote. 25

Simon, in contrast, was much more optimistic. In his 1981 book
The Ultimate Resource, Simon used empirical data to show
that humanity has always gotten around the problem of scarcity by
increasing the supply of natural resources or developing
substitutes for overused resources. Human ingenuity, he argued, was
“the ultimate resource” that would make all other resources more
plentiful. In 1980, the two thinkers agreed to put their ideas to a
test.

As Ronald Bailey wrote in his 2015 book The End of Doom:
Environmental Renewal in the 21st Century:

In October 1980, Ehrlich and Simon drew up a futures
contract obligating Simon to sell Ehrlich the same quantities that
could be purchased for $1,000 of five metals (copper, chromium,
nickel, tin, and tungsten) ten years later at inflation-adjusted
1980 prices. If the combined prices rose above $1,000, Simon would
pay the difference. If they fell below $1,000, Ehrlich would pay
Simon the difference. Ehrlich mailed Simon a check for $576.07 in
October 1990. There was no note in the letter. The price of the
basket of metals chosen by Ehrlich and his cohorts had fallen by
more than 50 percent. The cornucopian Simon won. 26

Simon’s critics, Ehrlich included, have since argued that Simon
got lucky. Had his bet with Ehrlich taken place over a different
decade, the outcome might have been different. Between 2001 and
2008, for example, the world had experienced an unprecedented
economic expansion that dramatically increased the price of
commodities. But Simon’s larger point concerning the long-term
decline in the price of commodities still stands. According to
Simon, when a particular resource becomes scarcer, its price
increases, and that change incentivizes people to discover more of
the resource, ration it, recycle it, or develop a substitute for
it. As such, population growth and resource use do not
automatically lead to higher commodity prices in the long run.

Let’s look at a concrete example. Research suggests that
commodity prices move in so-called super-cycles that last between
30 and 40 years. 27During periods of high
economic growth, demand for commodities increases. When that
happens, commodities go up in price. It is during this period that
high commodity prices encourage the discovery of new supplies and
the invention of new technologies. Once new supplies come online,
prices of “now copiously supplied commodities” fall. 28

Accordingly, the current commodity cycle seems to have peaked in
2008. In June 2008, for example, the spot price of West Texas
Intermediate crude oil reached $154 per barrel (2016 U.S. dollars).
By January 2016, it stood at $29. 29 However, the high price of
oil has led to fracking (hydraulic fracturing), which has
revolutionized the oil industry. In late 2017, with the global
economy on the mend, the price of oil hovered around $60 per
barrel. Fracking, which enables people to gain access to previously
inaccessible oil reserves in record volumes, seems to be keeping a
lid on massive price increases. The so-called shale band refers to
“a price level at which most North American deposits … can be
accessed with hydraulic fracturing technology [and] become
profitable.” 30Currently, the shale band
moves in a range of between $40 and $60. When the price of oil
moves much below $40, U.S. oil rigs shut down. As it moves close to
$60, U.S. oil rigs go back to work, thus lowering the price of oil.
31

In fact, humanity has yet to run out of a single nonrenewable
resource. Unfortunately, many people still believe that the answer
to scarcity is to limit consumption of natural resources. This
group includes Paul Ehrlich and his wife, Anne, who revisited the
Stanford University professor’s dire warnings in a 2013
Proceedings of the Royal Society article titled “Can a
Collapse of Global Civilization Be Avoided?” Undeterred by a
half-century of evidence to the contrary, they came to conclusions
similar to those that Paul Ehrlich had originally proposed in the
1960s. 32The Club of
Rome is still around and publishing. In 2017, it published a new
report titled Come On! Capitalism, Short-termism, Population
and the Destruction of the Planet, which insisted that “the
Club of Rome’s warnings published in the book Limits to
Growth are still valid” and warned that the “current worldwide
trends are not sustainable.” 33

To these warnings about humanity’s future, a veritable
smorgasbord of similar publications may be added. They include
Naomi Klein’s 2015 book This Changes Everything: Capitalism vs.
The Climate, in which the Canadian author argues that “our
economy is at war with many forms of life on earth, including human
life. What the climate needs in order to avoid collapse is a
contraction in humanity’s use of resources,” and Rob Dietz and Dan
O’Neill’s 2013 offering, Enough Is Enough: Building a
Sustainable Economy in a World of Finite Resources. According
to the American and Canadian economists, “We’re overusing the
earth’s finite resources, and yet excessive consumption is failing
to improve our lives.” 34

But consumption limits are unpopular and difficult to enforce.
More often than not, their effects fall hardest on the most
vulnerable. A switch from fossil fuels to “renewable” sources of
energy, for example, has increased the price of gas and electricity
in many European countries to such an extent that a new term,
energy poverty, was coined. 35 According to the German
magazine Der Spiegel, “Germany’s aggressive and reckless
expansion of wind and solar power has come with a hefty price tag
for consumers, and the costs often fall disproportionately on the
poor.” 36In democracies,
such policies are, in the long run, unsustainable. More important,
they are unnecessary, because real solutions to future scarcity are
more likely to come from innovation and technological change.

Oil, Gold, and Silver

As previously noted, three commodities are outliers and rose in
price more than income. Between 1960 and 2016, gold rose by 530
percent, silver by 234 percent, and oil by 367 percent. Does that
disprove Simon’s thesis? Far from it. For many decades, the oil
market was partly shielded from competitive forces by the
Organization of Petroleum Exporting Countries (OPEC), a cartel of
oil-producing countries. The OPEC nations frequently colluded to
restrict production of oil in order to keep its price artificially
high. The extent to which OPEC was able to achieve its goal in the
past is subject to much debate, but many experts have come to
believe that OPEC’s ability to affect the future price of oil is in
decline. 37 That’s
partly because of fracking of previously inaccessible oil reserves
in non-OPEC countries, such as the United States, and partly
because of technological developments, such as the accelerating
move away from combustion engine vehicles. 38 In expectation of permanently
low oil prices, oil companies, such as Shell, and oil-producing
countries, such as Saudi Arabia, are slowly diversifying to reduce
their dependence on oil production. 39 Put differently, people with
a stake in oil now assume that oil prices will follow Simon’s
prediction in the future.

Gold and silver have more unusual characteristics. In addition
to their commercial uses, such as serving as conductors of
electricity in switches and cell phones, gold and silver are also
“stores of value” or assets that can be saved, retrieved, and
exchanged at a later time. Historically, people of all income
groups used gold and silver to hide their wealth from rapacious
government officials and in the time of war. More recently, both
metals rose in price during the inflationary 1970s, when many of
the world’s most important currencies, including the U.S. dollar,
were rapidly losing their value because of monetary mismanagement.
They spiked again after the outbreak of the Great Recession and the
subsequent uncertainty about the soundness of the financial
system.

Conclusion

The discussion in this paper is not meant to trivialize the
challenges that humanity faces or imply that we will be able to
solve all of the problems ahead. Instead, it is meant to show that
the human brain, the ultimate resource, is capable of solving
complex challenges. We have been doing so with disease, hunger, and
extreme poverty, and we can do so with respect to the use of
natural resources.

Thomas Babington Macaulay, a 19th-century British historian and
politician, once asked, “On what principle is it that when we see
nothing but improvement behind us, we are to expect nothing but
deterioration before us?” 40In 1830, when Macaulay penned
those words, the world was just beginning to industrialize. One
hundred eighty-eight years later, humanity is not only still here,
but it is flourishing like never before. Few people today would
forgo the life expectancy, nutrition, health care, and education
they now enjoy in exchange for those experienced by Macaulay’s
contemporaries.

My calculation was based on the
following countries, which were the only ones for which data were
available: Argentina, Australia, Austria, Belgium, Brazil, Canada,
Chile, Colombia, Denmark, Finland, France, Germany, Greece, Hong
Kong, Ireland, Italy, Japan, Mexico, Netherlands, Norway, Peru,
Portugal, Singapore, South Korea, Spain, Sweden, Switzerland,
Taiwan, the United Kingdom, the United States, and Venezuela.

David Jacks, “From Boom to Bust: A
Typology of Real Commodity Prices in the Long Run,” National Bureau
of Economic Research Working Paper no. 18874, March 2013, p. 2,
http://www.nber.org/papers/w18874.